Hungary Banks Reject Haircuts on Muni Loans, Stepic Says

Jan. 16 (Bloomberg) -- Hungary’s government should avoid
asking lenders for a haircut on municipal loans as already
unprofitable banks hit by an extraordinary bank tax have no room
to absorb such losses, according to Raiffeisen Bank
International AG Chief Executive Officer Herbert Stepic.

Stepic spoke in an interview at the Euromoney conference in
Vienna today.

On municipal debt talks between banks and the government:

“These negotiations are going on with the banking
association and the negotiations have been going on for a while.
Frankly speaking, I do not know what the outcome will be so I
cannot make any sort of prognosis or forecast what will be the
effect also for Raiffeisen or for the other banks.

‘‘All that we know so far is that the first lot for
municipalities below 5,000 is settled, that is a first step. Now
how the government will deal with the second, much larger lot is
in disguise because it will very much depend on internal
information which we do not have: how much the government will
be prepared to invest. I doubt, frankly speaking, that the
government can ask for additional haircuts from the banking
industry because we have given more than we have.’’

On the Hungarian economic environment:

‘‘The economic environment for us is as difficult as for
any other bank. We see here the consequences of a long-lasting,
10-year, political mismanagement of the country topped up by
unorthodox governing regime of the present government.

‘‘It’s difficult to do business in Hungary because there
are no structural reforms happening, which would allow us to
phase in a certain perspective to our business policy.

‘‘The safe haven is to do business with western-based
companies that have invested there and there are many, thank
God, because Hungary was the darling of the west in the early
1990s. The situation on the retail front is subdued because
people don’t earn a lot and increasing savings are needed for
everyday life.

‘‘The situation is rather weak and we have to work our way
out together with the government. What we find positive is that
at least the government is starting to talk with us when it
comes to banking issues. This is already a positive aspect.’’

On the importance of who will be the next central bank chief:

‘‘Of course we care.’’

Central bank president Andras ‘‘Simor was a very
experienced banker. He has been holding out against government
requests that one could define as against the interests of the
economy of the country. He was a clear leader in the purest
sense of the word in Hungary. Of course we care who follows.

‘‘I don’t start to qualify’’ Economy Minister Gyorgy
‘‘Matolcsy. As long as he follows the interests of the country
in the purest sense of the word, Mr Matolcsy will be a perfect
president of the national bank.’’